Yen Eyes Worst Level in 32 Years on Hotter-Than-Expected Inflation

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By Ambar Warrick 

AiVIF.com-- The Japanese yen continued to weaken against the dollar on Thursday, nearing its weakest level in 32 years as a hotter-than-expected inflation reading added to pressure from rising interest rates across the globe.

The yen fell as far as 146.93 to the dollar, coming just a few points short of its weakest level since 1990. The currency took little support from warnings by Japanese policymakers against selling the currency, moving past levels at which authorities had intervened in currency markets last month. 

Data on Thursday showed Japanese PPI inflation blew past expectations in September, hovering around its highest levels in 41 years as rising raw material costs continued to weigh on local businesses. 

The figure heralds a similar rise in Japanese CPI inflation data due next week, given that most businesses have taken to passing on high material costs to their customers. Japan’s consumer price index is currently trending at an eight-year high.

Still, rising inflation has done little to change the Bank of Japan’s dovish stance on raising interest rates from record lows, which is the key reason behind the yen’s drastic tumble this year. A widening gap between local and global interest rates has made the Japanese currency far less attractive than its higher yielding peers. 

Pressure on the yen is expected to continue as the country grapples with rising commodity prices, which are also expected to crimp economic growth this year. 

Sentiment towards Asian currencies weakened further this week after hawkish signals from the Federal Reserve. Focus is now on U.S. CPI inflation data, due later today, which is expected to show that inflation remained stubbornly high in September.

High U.S. inflation is expected to invite more severe interest rate hikes by the Fed, which is negative for the yen and its regional peers.